How Investment Return Is Calculated

This usually happens because you added new money to the account during the period. A rising balance can reflect your own deposits rather than investment performance, so the correct way to judge performance is to subtract net contributions before calculating a percentage return, as shown in the worked example above.

Simple return typically measures price change adjusted for contributions and withdrawals, while total return also includes income such as dividends and interest, whether reinvested or paid out. For dividend-paying investments, total return is usually the more complete and meaningful figure.

Convert each to an annualized (compound annual) return, which expresses the total gain as an equivalent yearly rate. Annualizing removes the effect of different holding periods so you can compare results on a like-for-like basis rather than comparing raw percentages.

Most published returns for fund shares are typically shown after the fund’s expense ratio is deducted, but any advisory fees, trading commissions, or account fees you pay separately are not automatically included. Track them separately if you want to know your true net return.

The simple return formula works best for clean, single-period calculations. When deposits happen at several points in the year, some tools use an average of the beginning and ending balances, or a time-weighted method, to reduce distortion from the timing of your cash flows.

Not necessarily. A positive return should be judged against a relevant benchmark, your goals, the risk taken, and inflation over the same period. A 3% return during a year with 5% inflation represents a loss of purchasing power even though the number itself is positive.